Automated dealing systems (e.g., for trading currencies, commodities, and the like) are increasingly replacing the conventional manner of dealing using a broker as an intermediary. When a broker is used to complete a transaction, although anonymity of the counterparties is preserved until just prior to the conclusion of the deal, the broker can be relied upon to prevent one party from initiating or accepting a deal with another party with whom, for one reason or another, it does not wish to trade. Removal of such human safeguards has lead to the development of automated checks and validations in the automated dealing systems.
A number of anonymous distributed matching systems currently exist which automatically match offers and bids entered by trading entities and allow trading entities to view the market and choose from among the displayed offers and/or bids. One such system is described in U.S. Pat. No. 5,077,665, wherein a host computer maintains a host book data base including all active bids and offers in the system and distributes a subset of the host book, a keystation book, to the trader keystation. The contents of the keystation books includes an associated depth display range which is dynamically controllable by the host computer. The keystation book is also dynamically updated by transaction update broadcast messages received from the host computer. However, this system does not include any means by which credit availability between parties may be checked.
To accommodate the need for some form of credit checking ability in the distributed matching system disclosed in U.S. Pat. No. 5,077,665, a distributed matching system including a credit checking feature was developed as described in U.S. Pat. No. 5,136,501. The system described in this patent includes a credit feature by which credit availability between parties to a transaction is checked after a trading entity has selected a desired bid or offer and a match has been executed. Prior to sending a confirmation of the transaction to each party, the system performs a bilateral credit check to insure that each party has extended sufficient credit to the other to cover the amount of the transaction.
However, a drawback of the system described in U.S. Pat. 5,136,501 is that is does not allow a trading entity to determine whether a displayed bid or offer is actually available in view of bilateral credit extended between the potential counterparties prior to selecting the displayed bid or offer. As a result, the trading entity is unsure whether a displayed bid or offer is really available until after the trading entity has requested the transaction.
One possible solution to this problem is provided in U.S. Pat. No. 5,375,055, wherein each trader's display is prescreened for compatibility with limited credit information. The limited credit information consists of a one-bit data flag indicating whether a predetermined credit limit between the potential trading parties is available. The system displays to the individual trading entity the best offer and/or bid price available to that trading entity for a predefined quantity based on the trading entity's credit.
However, there are a number of limitations of the system described in U.S. Pat. No. 5,375,055. The system displays only the best prices available to the trading entity. There is no indication of what other bids and offers in the market are available to the trading entity, for example, bids and offers with slightly worse prices and bids and offers for which the quantity is less than the predefined quantity. As a result of the limited display of the system described in U.S. Pat. No. 5,375,055, transparency of the market, i.e., the degree to which trading entities have access to market information, is significantly less than, for example, in the distributed matching system described in the '665 and '501 patents. That is, the trader's display provides significantly less information about the aggregate activity of the market.
In addition, the system described in the prescreening of the display is accomplished using a credit matrix including one-bit flags which indicate whether a party's credit limit has been exceeded. Since the screening function is performed only on this basis and not on the basis of the actual amount of credit available between potential trading parties, the system described in the '055 patent is not capable of generating and displaying some types of desired market information, for example the quantity of an instrument available at a certain price as determined by the amount of credit available between trading parties. This system also fails to perform complex credit calculations wherein multiple credit limits are applied to a single order and/or wherein a single credit limit is distributed among multiple orders.